Oil rises as Iran sanctions gather momentum

JamesHerron

THE STORY: U.S and E.U officials Tuesday continued to push to isolate Iran by banning or discouraging Iranian oil imports and depriving the Middle Eastern country of a key source of revenues. The campaign against Iran spurred numerous comments by global energy heavyweights Tuesday and helped send oil prices higher.

WORRIED JAPAN SEEKS ALTERNATIVES: JX Nippon Oil & Energy Corp., Japan's largest refiner by capacity, has been in talks with Saudi Arabia and a few other oil producers about filling the gap in case of a ban on Iranian crude imports, a JX spokesman said Tuesday. JX currently buys 90,000 barrels a day of crude oil from Iran.

Japan's Minister of Foreign Affairs, Koichiro Gemba, said his country, "is very worried in regards to the developments taking place," with regard to Iranian oil. "we have to solve this problem diplomatically and we have to continue dialogue with Iran," Gemba said on a visit to the United Arab Emirates.

Japan has so far remained reluctant to halt crude imports from Iran, saying it is vulnerable to any energy supply disruption in the aftermath of the Fukushima Daiichi nuclear accident.

Saudi oil officials said they would only boost exports to Japan if they get a clear demand for more oil. "How many times we have to tell this to either Japan or anyone else?" a Saudi oil official said. "Our trade is commercial not political. If customers, not countries, ask for more oil we will give it to them. It is up to them to decide if they want to ban Iranian oil or not."

INDIA OIL IMPORTS UNCHANGED FOR NOW: Despite the efforts by the U.S. and the EU, some key Iranian customers said they were continuing to buy Iranian oil.

India still gets normal crude-oil shipments from Iran, two senior officials at India's oil ministry said Tuesday, though refiners in the South Asian nation have started looking for alternate arrangements to prevent any supply shortages. One concern is that new U.S. sanctions on financial institutions could block Indian payments through Turkish financial institutions to purchase Iranian crude.

Saudi national oil company, Saudi Arabian Oil Co., or Saudi Aramco, will supply full term volumes of crude oil to refiners in February, unchanged from this month, executives with three Asian and two European term lifters said Tuesday. Some Asian refiners may ask the world's top oil exporter to adjust the volumes of some grades in view of its attractive prices as well as due to any shortfall in supplies from Iran.

US WOOS RELUCTANT CHINA: U.S. Treasury Secretary Timothy Geithner arrived in Beijing on Tuesday for talks focused on sanctions against Tehran. Geithner is expected to encounter stiff opposition in Beijing, which has warned against escalating tensions with Iran.

A conflict with Iran would, "bring disaster to a world economy deep in crisis," said Chen Xiaodong, a top Chinese diplomat on Middle East affairs in an online interview with the state press.

EU QUICKENS THE PACE: European foreign ministers will meet in Brussels on January 23, earlier than previously arranged, to discuss matters including the final details of sanctions on Iranian oil, a European Union official said Tuesday. At the same time, EU members continue to debate key implementation issues, such as when the embargo would take effect.

"We're confident of reaching agreement on a package of sanctions by the 23rd," one EU diplomat told Dow Jones Newswires. "There's still discussion of a range of options for the best time period for imposing them," said a second diplomat.

On Tuesday, Italian officials said Italy was strongly on board with the E.U. push. Italy appears to have succeeded in getting EU partners to accept the exemption from the Iranian embargo the crude payments the country's biggest energy company by revenue Eni SpA
E, -0.77%
receives.

OPEC WANTS NO INVOLVEMENT: The Organization of Petroleum Exporting Countries will not get drawn into the sanctions standoff, despite Iran being a prominent member of the group, senior officials said.

On Monday, Venezuelan Oil Minister Rafael Ramirez, who has been a close ally of Iran within OPEC, also told reporters in Caracas that OPEC would stay outside the sanctions issue.

On Tuesday, a Saudi oil official took the same position. "Our trade is commercial not political. If customers, not countries, ask for more oil we will give it to them. It is up to them to decide if they want to ban Iran oil or not." the official told Dow Jones Newswires.

IRAN BAN COULD REOPEN OPEC SPLIT: OPEC rediscovered elusive consensus on oil production at its smooth December meeting in Vienna. However, Petromatrix analyst Olivier Jakob warned that a ban on Iranian oil could provoke even worse rifts.

"One of the risks with Saudi Arabia trying to replace Iran supplies while the West imposes an embargo is...a greater conflict between Iran and Saudi Arabia," he said. "We should not forget that the initial start of the Iraqi attack on Kuwait had something to do with Kuwait over-producing and taking the market share of Iraq."

OIL PRICES RISE: Oil futures climbed Tuesday as tensions between Iran and the West continued to escalate, while U.S. equities opened higher. Light, sweet crude for February delivery rose $1.42, or 1.4%, to $102.74 a barrel on the New York Mercantile Exchange. Brent crude on ICE Futures Europe added 74 cents, or 0.7%, to $113.19 a barrel. Oil market participants have been closely following events between Iran and the West in recent months, after the International Atomic Energy Agency accused the country late last year of taking significant steps toward developing a nuclear weapon.

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